Blink at the brink

25 November 2009 By Jeffrey Goldfarb Follow @jgfarb

Lehman was allowed to fail. Lesson learned. The UK secretly passed cash to RBS and HBOS at the last minute in 2008. And when WestLB s savingsbank owners threatened to leave the German lender for dead, the government said no. The threat of big bank collapse concentrates minds.

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WestLB secured financing to create Germany's first bad bank following threats it might be closed down as government guarantees expired. The commercial lender will ringfence 85 billion euros of assets. A government rescue fund will contribute 3 billion euros of capital and WestLB's savings bank owners another 1 billion euros.

Separately, the Bank of England disclosed that it had extended £61.6 billion of emergency funds to Royal Bank of Scotland and HBOS in October 2008, within minutes of the banks closing their cash machines and other regular business operations. The central bank decided to keep the support secret to avoid jeopardising the financial system.

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